Chao Acer released its 2024 semi-annual report: the first half of 2024 achieved revenue of 3.431 billion yuan, an increase of 14.15% year on year; net profit to mother was 0.229 billion yuan, up 10.04% year on year, after deducting non-return net profit of 0.225 billion yuan.

Results for the second quarter of 2024: revenue for the second quarter of 2024 was 1.635 billion yuan, up 10.33% year on year; net profit to mother was 0.098 billion yuan, up 17% year on year; net profit after deducting non-return to mother was 0.097 billion yuan, up 17% year on year.

The company announced a semi-annual profit distribution plan: it plans to distribute a cash dividend of 1 yuan (tax included) for every 10 shares to all shareholders.

Brief review and investment advice:

1. The revenue of the 1H24 jewelry division increased 17% year on year. According to the net increase of 52 jewelry stores, 1H24 Chao Acer's own revenue was 1.725 billion yuan, a decrease of 3.98% year on year; franchise agent revenue was 1.647 billion yuan, an increase of 43.66% year on year. Among them, agency brand license fees and franchise service revenue were 0.123 billion yuan, an increase of 41% year on year.

Looking at the number of stores, ① net increase: net increase of 52 jewelry stores of the 1H24 company, including a net increase of 69/ decrease of 17 in franchised and direct sales; ② As of the end of June 2024, the company had 1,451 jewelry stores, including 257/1194 own/franchised agents; ③ Looking at the subregion, the East China region/other regions each had a net increase of 16/36. In 2023, the company set a goal of net increase of more than 300 affiliate stores by 2024 and 2,000 stores by 2025.

By category, ① Fashion jewelry: 1H24 revenue was 1.65 billion yuan, up 5.97% year on year, gross margin was 28.52% year on year, -3.44pct year on year, accounting for 48% of total revenue; ② Traditional gold jewelry: 1H24 annual revenue was 1.48 billion yuan, up 31.37% year on year, gross margin was 9.78%, up 0.77pct year on year, accounting for 43% of total revenue; ③ Leather goods: 1H24 revenue was 0.15 billion yuan, down 26.07% year on year, accounting for 4 percent of total revenue %.

Segment: The net margin of the Jewellery segment increased. ① Jewelry Division: 1H24 revenue 3.28 billion, up 17% year on year, net profit 0.237 billion, up 21.63% year on year, net interest rate 7.21%, up 0.3 pct year on year; ② Women's bag: 1H24 revenue 0.15 billion, down -26% year on year, net profit loss 0.003 billion, down 117% year on year, including calculated asset impairment loss of 0.99 million.

2. 2Q24 gross margin -2.43pct, period expense ratio -3.15pct.

Gross margin is under pressure due to changes in product structure. The company's 1H24 gross profit margin was 24.15%, -2.75pct year over year; 2Q24 gross profit margin was 23.30% (-2.43pct). We think the gross margin may have declined due to changes in product structure.

Expense rate for the 2Q24 period -3.15pct. The cost for the 2Q24 period was 0.23 billion yuan, -10.04% year on year; the cost rate for the period was 13.90%, -3.15 pct year on year. Specifically, 2Q24 sales/management/R&D expenses were 0.185/0.033/0.013 billion yuan each, and the sales/management/ R&D expenses were 11.33%/2.04%/0.81%, respectively, -3.25/0.15/-0.27pct.

Update profit forecasts. The company's revenue for 2024-26 is estimated at 6.823 billion yuan, 7.802 billion yuan, and 8.769 billion yuan, respectively, and net profit to mother of 0.391, 0.454, and 0.514 billion yuan, respectively. Considering that the company still has high room to expand its stores and increase the company's ROE, 12-15xPE in 2024 corresponds to a reasonable market value range of 4.698-5.872 billion yuan, and a reasonable value range of 5.29-6.61 yuan.

Risk warning: goodwill impairment, inventory impairment, franchise management, market downturn.